Earlier this week I released my video presentation on the State of Banking: Trade of the Decade update. It is on my YouTube channel if you want to check it out but I also want to rehash it in print today. When we hear people talk about bank stocks 99% of the time it has little or nothing to do with our community banks. Most of the problems and issues facing the big banks do not affect community banks at all. Community banks don’t need to worry about lower trading revenues and most of them have little to no exposure to energy loans and troubled emerging market governments. The little banks are less liquid and garner for a less attention from Wall Street and the media. The fact of the matter is that the State of the Community Banks is pretty damn good.
Balance sheets have been rebuilt since the credit crisis and equity levels are well above pre crisis levels .In fact they are at a 70 year high as of year-end 2015. They are so high some worry that carrying excess capital is actually hurting operating performance. Loan to deposit ratios are fairly low so there is room for banks to grow their loan portfolio if we start to see stronger economic conditions. The smaller banks are hiking dividends and buying back stock at bargain valuations, all of which is good for shareholders.
Credit conditions are outstanding. We have now had more than 20 quarter of improved credit conditions and I think that for community banks that streak will continue with the first quarter 2016 reports we are starting to see. Banks have gotten a lot better at underwriting and the regulatory environment has discouraged some of the riskier lending practice we have seen in the past. Some ...
